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News/Business. Ali Velshi. CNN anchors break down the financial news of the week. New.

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Washington 20, Us 12, U.s. 12, America 8, Ali 7, United States 6, S&p 5, Officemax 5, Pimco 3, Maya 3, Ned 3, Warren Buffett 3, Mohammed 3, Obama 3, Howard Buffett 2, Steven 2, Stephen Moore 2, Ned Riley 2, Ted 2, Cnn 2,
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  CNN    Your Money    News/Business. Ali Velshi. CNN anchors  
   break down the financial news of the week. New.  

    January 6, 2013
    12:00 - 1:00pm PST  

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now checking some stories
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that are trending on the internet. josh brolin spent part of new year's day in a california jail. the actor was arrested for public intoxication. he was not given a citation. and he was released after a few hours after he sobered up. tonight's big night for all "downton abbey" fan that will party like it's 1920. they premiere the third season tonight. this season a new addition to the cast. shirley maclane. when notre dame takes to the field for tomorrow's bcs national championship there will be one very famous former player in the crowd. i'll be back in an hour for a conversation with a man who inspired the movie "rudy." stay with cnn, "your money" starts right now. good-bye fiscal cliff, hello, debt ceiling cliff. your elected officials ready to push america over the edge of the cliff. >> i will not have another
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debate with this congress over whether or not they should pay the bills that they've already racked up through the laws that they passed. >> well, yes, you will, mr. president, and very soon. democrats and republicans are set to clash again over raising the u.s. debt ceiling. back in the old days, the u.s. had a snl where every time a bill involving money was passed, the treasury had to raise money for by issuing bonds. the debt ceiling law was given the u.s. treasury the flexibility to borrow money. it had nothing to do with spending control or debt control. it was a technicality. most functioning countries don't have any such thing because they understand that if the government spends the money. it has to pay the bills. republicans seem to think that the debt sealing is a good tool to limit how much the government spends, the current debt ceiling was hit on december 31st, but like last time, the u.s.
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treasury is using extraordinary measures to ghet get it through and sometime late february, early march, they might. if congress doesn't act by then, the government risks not being able to pay some bills. if that's not enough. by march 1st, we could be heading off the sequester cliff. that's because the fiscal cliff deal that passed last week put off what to do with government spending for two months. blanket cuts are still mandated by law to take effect unless both parties can agree to more targeted cuts. now republicans will target entitlement. democrats will stand in their way, the gop will use the debt ceiling as a hammer to bang on the heads of democrats to try to get their way on cuts. if washington gets to march unscathed, there's a potential budget cliff to look for. the current bill funding most of the federal government runs out on march 27th. it will be four years since the last actual complete budget was signed into law.
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look for lawmakers to extend it again through another so-called continuing budget resolution. now this continues, we stand the possibility of another debt downgrade and higher borrowing tops. washington can't agree on anything except for last-minute tax deals after 518 days of grandstanding. this is no way to run the u.s. government. joining me is stephen moore, an anti-tax crusader and an editorial board member at "the wall street journal." let me start with you, president obama says the debt ceiling is nonnegotiable. but republicans in congress are going to use it as a negotiation tactic. you always say that government needs to get out of the way and let businesses grow. isn't not raising the debt ceiling to pay for bills already incurred. standing in the way of the economy? >> well you know, ali, you said this, the republicans view this as a good tool to try to discipline spending. i don't think they view this as a good tool. but i think they kind of view this as pain the only tool they have right now to try to get
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president obama to negotiate on spending cuts. as you quite correctly said, we just live heavied through the first of these cliffs, which was the fiscal cliff. we got by that one. democrats feel they had their day there and they did, they got their tax increase. republicans are still wondering when are we going to get around to reforming these big giant entitlement programs and maybe disciplining spending on the discretion aye side, i think there will be a showdown on the debt ceiling. you may not like it, but i think we may come to the brink again. this issed way washington works now. >> conservative republicans hold themselves up as financially responsible. isn't this an irresponsible thing to do? despite ideological leanings, to not pay bills that we've already run up? >> well i think you gave a nice presentation in terms of the history of the debt ceiling. but the recent history as long as i've been in washington the last 25 years, ali, we broke from that convention and we've
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used the debt ceiling as a way to get things that we want in terms of the budget process. i remember in the 1980s, we had these votes on the balanced budget amendment. that was part of the debt ceiling and the grm ruddman was supposed to discipline spending as part of the debt ceiling. the convention in the last two or three decades has been to use the debt ceiling as a tool to get serious about cutting spending. >> mohammed al arian is the ceo of pimco, one of the world's largest investors in bonds. president obama just appointed him to chair the development council. businesses and markets want certainty in the economy in order to invest and promote growth. we have three more potential cliffs awaiting us. america's economy has been picking up steam. could washington damage america's economic prospects with the way these things are being done as steven and i have just discussed? >> yes, it could damage and has
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been damaging. because we have been growing below potential. as you point out. as steven said and i agree, we have yet another drama coming up in the next few weeks. because we have to deal with the three issues, sequester, debt ceiling and timing. we would conclude all of us, republican, democrats, we would all conclude that we have a messy, if not broken economic governance system. and the major casualty of that is economic growth. and ironically, economic growth is what is needed to help those that the democrats favors and those that the republicans favor. so it's very frustrating. the more the political brinksmanship and posturing go on, the greater we undermine the potential of this country to grow. and it has huge potential, ali. >> that's potential growth. some of it comes if the whole tax discussion. taxes for the rich got the rls in the debate. it's not only the rich who are
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actually going to pay more in 2013. christine romans, host of your bottom line joins me with more. lots of taxes are going up despite the deal that we got. >> taxes are rising for the superrich for the first time in 20 years, they'll have a lot of company, 77% of americans will pay higher taxes next year in 2013. according to the tax policy center. even those making less than $10,000 a year will pay $68 more in federal taxes between $50 and $75,000, you'll pay $822 more. the more money you make, the bigger the hit. families making more than $1 million, is r will see a tax hike. the payroll tax cut wasn't renewed as part of the deal. workers will pay 6.2% payroll taxes up from 4.2%. there's another back-door tax increase for upper middle class families. joint filers making more than
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$300,000. individuals making more than $250,000 will see their personal exemption and itemized limits. higher tax bills for those families. the only groups who won't have higher taxes this year, retirees, the unemployment, the disabled and rich people who don't work. >> wow. tax bills higher for everyone else. >> this was broad based despite we had the impression that only the rich got taxed higher. go we're going to talk about jobs, a brand new jobs report for december. maya mcginness is the head of the committee for responsible budgeting. your focus son long-term solutions to economic problems. with three more cliffs facing the u.s. in the next few months, what's the danger? the danger of consistently making policy through these manufactured crises? >> exactly. we're already actually experiencing the result of that.
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we know what we have to do to fix these problems, we have to deal with all the parts of the bumt. we've got to reform the tax code and probably raise more revenues than we have. and focus on controlling spending and reforming our entitlements which are unsustainable and continue to delay in dealing with them. delaying all of this is irresponse inl and the fact that the way we negotiate these deals and make these changes is incremental and always at the last moment is already harming the economy. the potential upside will come from putting certainty into the economy and putting plans in place that are sustainable and people know what they can expect that will allow us to return to stronger economic growth that we can, absent those choechs. our political system is failing to put those changes in place right now. even though we don't see the direct effects, it's affecting all of us, households, families, small businesses and we're not going to get back on track until we make these changes. >> let me ask mohammed this.
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when maya talks about certainty, is what we want. even when certainty goes in a direction you don't like. how do you reconcile the fact that there are ideological and legitimate differents between conservatives and liberals in this country. with tax spending policy, with the world required to retain faith in the united states? >> i think you can reconcile lots of these in a growing economy. i think it's critical, ali. a lot of these inconsistencies can be reconciled if the economy were growing. it is when the pie starts to shrink or doesn't grow fast enough that these become so divisive and become paralyzing. you know, we know lots of companies that have very strong balance sheets. that have lots of cash on their balance sheets. but they're not investing and ask them why, they say, we don't know what the environment looks like. tell us what the environment looks like, so we can calculate the potential return on investments and we'll invest.
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if uncertainty prevails, the risk premium is very high and you price out a lot of investment activity that's good for everybody. >> they might go somewhere elsewhere they'll have more certainty. all of the fiscal cliff madness is about spending and revenue. in other words, what you would call a budget and there's nothing more broken in washington than the budget process. >> if you are not yet outraged. stay with us and you will be. people really love snapshot from progressive, but don't just listen to me. listen to these happy progressive customers. i plugged in snapshot, and 30 days later, i was saving big on car insurance. with snapshot, i knew what i could save before i switched to progressive. the better i drive, the more i save. i wish our company had something this cool. you're not filming this, are you? aw! camera shy.
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fiscal cliff debate is centered on the revenue that the u.s. government takes if and the money it spends. in a perfect world that would be laid out in a plan every year in the form of a budget. we're in the current mess considering congress has gone close to four years without agreeing to a new federal bumt. the current so-called continuing resolution is the latest extension to the last federal budget, sit down for this, signed into law in april 2009. the current continuing resolution expires on march
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27th. under normal circumstances the president submits an annual budget proposal to congress in february for the fiscal year which starts in october. based on that, a budget president is written, deliberations and hearings takes place. amendments are made, the complete budget resolution is supposed to be passed by april 15th. it often takes longer. in the end it's sentd to the president for his signature or veto. now sometimes congress doesn't pass a budget resolution. when that happens, the previous year's resolution stays in effect. so-called dinning resolutions are approved that continue funding federal agencies at their current levels that way the government doesn't need to shut down just because your elected officials won't agree on a new budget. the only problem, we've had countless continuing resolutions over the last now years because very little, if anything, is agreed to in washington these days. this is no way to run the government. maya mcginness, why don't we have a budget? and why does it seem to happen
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every year? >> i agree with a point you made before. there are different points of view from republicans and democrats, one group wants smaller government. one wants bigger government and they're legitimate, different points of view and yet the way we handle this in washington is completely unacceptable. in two things. instead of compromising we just spend more money, and refuse to pay for it that's why we have a deficit. and because policy makers are unwilling to come together and compromise and hammer out those differences, we operate the single biggest economy in the world without a budget. because they don't want to face up to the actual choices, if you want to spend more, how are you going to pay for it? or if you want lower taxes, what spending are you willing to cut? big deficits and operating without a budget is kind of an easy way to escape those hard choice, that's what's left us in this damaging, unsustainable economic situation. which is frankly so bad for the economy and also bad for the next generation. >> who do you hold responsible.
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>> not for ideological differences, but for having budgets? >> people always say, let's point fingers. i hold our government officials responsible. the people who we all hire to come to washington to run this country. and we're working with a lot of ceos who are watching this and saying how comes these guys can't work together? they want to get more involved in pushing them to come up with a deal. it's so frustrating to them and our small business leaders and our citizens who are part of fix debt saying we actually want them to solve the problems and help strengthen the economy. i want to look at it as the people we hire to run the country and we're not running it well right now. >> i would like to have brad pitt and have a full head of hair, but i don't think i'm going to get that either, maya. let's ask stephen moore, how bad is it that we don't have a budget and who do you hold responsible? >> it's dysfunctional, but look, let's be fair and i am a republican. i'll admit that.
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when you talk about not passing a budget, ali, you should let your viewers know it's been 1400 days since the democrats under harry reid have passed a budget. they haven't done their constitutional obligation of passing a budget every year. you may or may not like paul ryan's budget. i know there's are things that you've picked apart. but at least the republicans have passed a budget in the house. are both sides responsible for not passing a budget, no, the democrats are not. and the president, every year submits a budget to congress, he will submit one in the weeks ahead. when he submitted his last budget before the democratic congress and they voted on it, that was defeated 97-0. so one of the problems here, i think what republicans are going to say going forward, mr. president, you and harry reid go forward. we've passed three budgets, we've done one every year. it's time to show your hand and tell us you want to do. the frustration i have with you and mohammed is you talk about
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how we have this gridlock and the republicans aren't being reasonable. but isn't it time for the democrats to say what they want to cut? >> mohammed, let me ask you, as you look at evaluating people's credit worthiness, the absence of a budget, does that come into a an equation when looking at the united states credit worthiness and its investment climate? >> yes, and for many reasons. first an annual budget is the most basic element of economic governance. a family knows that, your annual budget is really important. if you have a country, as maya said the most powerful country in the world who can't even do that, it points to dysfunction. second, the more we focus on the fiscal issue, the more we get obsessed, the more we forget other things that need to happen to grow this economy. remember, med yum term sustainability is a fraction.
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the numerator is debt and deficits and the nominator is prosperity. the more we divert attention what needs to be done -- this reminds me of a divorcing couple fighting over a pillowcase, yes, it may be important. but there's a lot more to the estate that you should worry about. and the frustrating thing is that we're not looking at what promotes economic growth. congress is creating problem after problem. to divert attention from much bigger issues that require difficult decisions. >> i love you guys at pimco. >> a divorcing couple fighting over a pillowcase and ignoring the bigger part of the estate. great conversation to all of you. stephen, mohammed and maya, thanks very much. i want to ask you out there, who do you hold responsible for not having a budget? you heard the argument. tweet me, @ali velshi. could the fiscal cliff have happened in another country with a different form of government? we'll see if america's system of
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so many people are said to me, if only america had a different political system. maybe a parliamentary system in which a government with a majority could get something done. here in the united states, through a system of checks and balances, president obama can veto legislation that's passed in congress, but he needs to work with congress if he hopes to sign laws that he supports. meej the u.s. supreme court can declare laws unconstitutional
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even though the other two barrages have passed them. in great britain they have a system where power is concentrated in the legislature with few check, a party can form a government, a cabinet of ministers headed by the prime minister. but if the party with the most seats holds less than an absolute majority it tries to form a coalition government with other parties that are seated n inme inment. so long as the government has the backing of a parliament majority, it's sure of passing anything it wants into law in the united states. not so in the united states. americans elected a democrat to the white house and the republican majority to the house of representatives. the u.s. is no stranger to gridlock and fiscal cliff negotiations were just another frustrating example. my good friend, richard quest, host of quest means business on cnn international joins me from london for a little debate on what we like to call q&a. >> could the fiscal cliff have happened in another country with another type of government? richard, ring the bell so i can
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start. >> the fiscal cliff, richard, couldn't happen anywhere but in the states, because last year washington passed laws harsh enough to send america back into recession. that was billed as a compromise between democrats and republicans, just to raise the u.s. debt ceiling. now i'm the first to concede that politicians in a parliamentary system like the one you enjoy in the uk are just as capable of enacting stupid laws, but today's fiscal cliff can only be born in a system where two branches of government are at war with each other as they are now. bottom line in a parliament system it's faster and easier to pass legislation if you've got a majority. they push their agenda until such time that another election comes around or voters lose confidence. it's not perfect. sometimes the parliamentary majority does the wrong thing,
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but washington would have a better chance of getting things done if we had that kind of a system. richard? that's my six and a half minutes. you have 60 seconds. >> this is deeply worrying. because you and you are virtually word for word. by its very nature, no system of government is perfect. and can suit every situation. but it must be pointed out the u.s. does manage to get itself into more political gridlock more often than others, even those countries which he have executive presidential systems, even in co-habitation they don't end up in the same stalemate. one reason is especially where we have the parliamentary system, that majority that you're talking about. which supports the government. even when it's a weak parliamentary system, italy or
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israel, the coalition collapses and everybody has another vote. pulling it together, checks and balances are an amazing bulwark, the system of strength of the united states. but when you have both ends of pennsylvania avenue at each other's throats, hammering out disagreements, it's just about impossible. >> q&a and you, i want to know if you think embarrassment that's the fiscal cliff mess could happen in another country. tweet me. coming up, why december december's job numbers prove another economic renaissance is on the horizon, if washington doesn't mess things up. yeah. don't say it. so you know what it is, right? yeah, yeah, don't. that's a lot of dough! ♪ [ male announcer ] switch and you could save $480 bucks with state farm.
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155,000 net new jobs in the month of december and the unemployment rate at 7.8% after the labor department revised the rate up a notch. positive if otherwise sluggish job gains that we've been seeing for about 30 straight months. but big gains in construction and manufacturing jobs in december support my thesis that an economic renaissance is beginning in america, if only washington would stop trying to mess things up. for more on what the jobs report said, here's christine. >> well let's take a look you've got enough jobs being created that you're absorbing new people into the workforce, but you're not lowering the unemployment rate, that's where things get sticky. the underemployment rate, 14.4% is not budging, either. those are the people working
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part time but would like to be working full time. people out of work and kind of sidelined by the economy overall. you mentioned a couple of those areas that are doing well. 44,000 jobs created in health care, a steady winner for the economy. some of those are low-paid jobs. others are good and middle class jobs. leisure and hospitality, we must have been i guess preparing for the end of the world by going out to dinner december. we added waitresses, waiters, chefs and bartenders. manufacturing jobs, 25,000 created there. if you flip the screen you can see the construction jobs. some of those are hurricane sandy-related. maybe as you get some federal aid flowing in the northeast. some of those jobs will continue again. when you look within the sectors, you can see basically steady for everybody except the african-american unemployment rate jumped up to 14%, it's been volatile. but you can see the structural disparities here between some of the different worker groups. the great recession just made it
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worse, quite frankly. this is over the past year. remember in the spring how worried we were about the weak jobs report and it bake very, very difficult in the election season about who was going to reverse this. now you're seeing this, i would call this treading water, businesses carefully hiring, they're waiting for something really to unlock the genie out of the bottle and they haven't seen it yet. >> let's join diane swo in everyone k a chief economist at mesirow financial. the u.s. is poised for an economic renaissance with an energy boom and housing and manufacturing. we saw gains in construction and gains in manufacturing. what's your sense, ha do you make of this report? >> the construction and manufacturing. some of it was sandy related and housing market related. last month's construction report. the only real bright spot was residential construction.
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that's where the bang for the dollar is in terms of jobs, that's the place we need to see come back. we continue to see some losses in educational employment at the state and local level and retirees in the postal sector, we've yet to see the cutbacks in the budget for the u.s. post office, it will be a bigger headwind down the road. we're seeing retirees, so the public sector, still a drag on the overall numbers. the health care industry, the surprise on the upside was in nursing and nursing homes. people, the 80 and over demographic are the fastest-growing demographic today. the flip side of the report, where was the fiscal cliff fears it was in retail. we saw retail fires in december. retail was very weak. people started to realize the fiscal cliff was out there. a lot of stores said they never recouped after sandy. and retail season. we saw the retailers that had
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hired up early fire and get red of some of the seasonal workers as well. so that's the fiscal cliff undercurrent. >> is there anything in the law that could unlock some of the money on the sidelines that companies have just sitting in the bank? i know there's a bonus depreciation clause. is there anything in the fiscal cliff thaw think does provide resolution to companies so that maybe this month they say i am going to add another shift. i am going to hire more workers. i am going to try to expand? >> i wish i could say yes and i want to be optimistic. i think we've learned something from 2011. we've got two months on the sequestration, and getting held up over the debt ceiling. we're in a no man's land. the fiscal cliff deal resolution was marginal. it did not get the kind of resolution companies need. and in fact, it sort of confirmed you know, we're going to see a tax hike for most americans, because you have the
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expiring payroll tam because that will hurt retailers. the retailers hangover into january because of the gift card and the buying that got pushed into january, that's not occurring and won't occur into january. i think we'll see more of a headwind in retail in january. there's not the kind of things that unlocks the money from the sidelines until we get a real fiscal deal and until washington can do more than pass the 11th hour. thank goodness january 1st was a holiday. they took the holiday voted in so no one really noticed that they missed their deadline. >> i was looking forward to january 1st and 2nd for this all to be over. you've done the math. 1.8 million jobs created. both obama and romney said if they're elected they'll create 12 million jobs, 250,000 a month. we know there's not going to be any unlocking, unleashing of this economic animal spirit at least until the fiscal cliff is finally settled.
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the sequester. march 1st, we hope and there's a budget debate. have we pushed back the days in which we can start the see real growth in the renaissance? >> i think we have. if we do get over this, and get to some real resolution, we talked about this before, a road map for fiscal responsibility in this country. avoid a default on our debt, avoid downgrades to our debt and actually look like our government is leading instead of lagging. that could set the stage for a stronger second half. you talked about housing. house something a game changer. we have housing prices rising instead of falling. remodeling picking up. we add to that unlocking money to rebuild for the hurricane disaster areas. and we've seen auto sales. that along with housing market and the wealth effect from homes moving up in price, people willing to remodel. maybe not willing to list but remodel the stock of homes in new york, fall ton new lows,
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this is major game-changer for the u.s. economy, even though we're still seeing losses in public-sector jobs, they're abating, the headwind is abating, so the dynamics for 2013 are the best they've been for years if we get the government out of the way. >> well said, thank you, good to see you as always. have a happy new year. i suspect we'll be talking lots. you recognize this guy? billionaire investor, warren buffett. his legacy will be defined by the billions he's made for himself and his investors. a more important part of his legacy might be the work that's being done by his chrld. i'm going to sit down with his son, howard buffett, a farmer set to take over the empire.
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when warren buffett speaks, the investors listen. he's yet to name a ceo to succeed him but he's picked his son, howard buffett to become nonexecutive chairman of berkshire hathaway when he leaves. a selection that confounded some investors, because howard isn't a high-flying investor on wall street, he's a farmer from illinois. i asked howard what his father means when he calls him the guardian of berkshire's culture.
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>> well it's pretty simple. it means he's made a lot of promises over the years to a lot of individuals, a lot of managers, a lot of families and he wants those promises kept and he wants the same culture in place and so you know, i'll have nothing to do with running the company. but i understand the company, reasonably well. and so there will be a ceo in place that does the day-to-day management. he wants to insure between the board and the nonexecutive chairman position, that the culture is being maintained. >> i wasn't being facetious when i said you're a farmer from illinois. >> my mother said i didn't have enough tonka toys when i was little, so now i have a lot of big toys. >> you conduct your own harvests? >> yes, i block out time in april and september and make sure that i'm home. but it's a rolling office for me. i mean i had tony blair there this year. i had eva longa and it's a captive audience. it's great, you get them in there and they can't go
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anywhere. >> why are you a farmer and why, in particular, the end of the sentence is why are you a farmer when warren buffett is your father? >> well i'll back up and say that it's because he is my father. because my dad is amazing in terms of letting his kids do what they want to do. what they're best at doing. letting them fail and learn from that. the fact that he told all three of us, go do what you love doing. if i had a father that was trying to dwrekt me one way or the other, i never would have had the opportunity to do what i'm doing. >> let's turn to politics, it's kind of central. i've tried to avoid politics for so much of the show. but it is important. you are a republican. you identify as a republican. you also have a father who, whose name has been attached to something that, that is an anathema to republicans. what do you think about taxes? >> i don't think my dad's that
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far off on this one. i mean you know, i was when we were visiting earlier. i said i'm in a 35% tax bracket. my dad got me thinking about it a few months ago. our effective tax rate that we've paid over the last five years has averaged just under 24%. so you know, i like to talk about well i'm taxed at 35%. i'm not paying 35%. but i also believe that you can overtax and you can hurt people and if you hurt people you hurt the economy by overtaxing. so there's a balance there. but i can tell you, we have a long way to go on the spending side of it. >> a lot of work there. one of the things that we're looking at that's being examined is the estate tax. this is an issue that you have some direct experience with. your father is a signatory to a letter saying there should be taxes on estates, patellaorly because he doesn't think
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dynastic wealth should be passed down. >> it's an emotional issue. i completely understand that i think my dad's line is one of the best. which i'm going to give my kids enough that they can do something, but not nothing. and if you just think about that, that's a great philosophy. i think my dad has been clever without saying it. because he gave all three of us kids, now almost over a couple billion dollars over time through our foundations and to me, what better inheritance could you have than to be able to go out and spend serious money on trying to solve some of the most serious problems. when i look at it personally, i look at it as my parents have already basically given me an inheritance and i love what they've done for all three of us. >> were you ever sore that you didn't get more? >> no, i think what i learned, it's interesting, because you go through and everybody would be different. but at first i'm thinking, i need more, i need more.
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and then you get more and you go, okay, now i've got to be really responsible with this. this is a lot more and so you go through these phases. i think he was vr smart about how he staged this in for us. >> well despite the political madness in washington over the past years, stocks rang up some pretty impressive gains in 2012. you can probably thank ben bernanke and the fed for that. after the break i'll tell you what 2013 holds. just use your maxperks card and get a case of x-9 paper for only 1-cent after maxperks rewards. find thousands of big deals now... ...at officemax. [ male announcer ] how do you turn an entrepreneur's dream... ♪ into a scooter that talks to the cloud? ♪ or turn 30-million artifacts... ♪ into a high-tech masterpiece?
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2012, despite everything was a good year for the stock market. the s&p 500 gained about 13%, the biggest gain in three years. the problem is most of you probably missed it. individual investors yanked $152 billion over the course of the year, it turned out to be a mistake. between banks behaving badly. political dysfunction in washington, worrying winds blowing over from europe. the market was a scary place to have your money. but it is a new year and a new opportunity to put your money to work. it will be volatile and unpredictable. 2012's worries have not disappeared. a debt ceiling debate, a fiscal cliff on the horizon, a budget discussion and we still have concerns about growth in europe and asia, cnn money polled a group of money managers on average. they forecasted the s&p 500 will finish the year up 4.5%. that's pretty low by historical standards. pimco founder is on the same
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page. his forecast, stocks and bonds return less than 5% in 2013. unemployment will stay at 7.5% and that gold will go up. i want to bring in ned riley, the chairman of riley asset management. ned, you are an eternal optimist with markets, do you think the forecasts are too low? >> i think they are too low. as a matter of fact we're looking specifically for the unemployment rate to drop to about 7%. the creation of 250,000 jobs a month seems a little bit ambitious. as the administration has put that out as a target. but i look at things such as what the auto industry is doing today versus what it did a year ago. what the housing industry is going to do in 2013 to gets things motoring along. i also am somewhat of a contrarian in china and the far east. i think things are going to bet better as the year progresses, the eurozone should benefit from the easy monetary policies that they've seen and we don't, we're
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not even arguing about a financial crisis in the eurozone right now. interest rates have come down in the harmed countries, so when i wrap it all together and i've got about ten other reasons why i like the stock market. i think the market is probably going to be up what it was this year. about 13% or so. i'm -- >> double what a lot -- >> well that's a bullish way, 10, 12, 13% of the market. gina martin adams is an equity strategist at wells fargo securities. ned talks off a lot of things, unemployment. auto, housing, asia. you put those same things into a mix and you don't get as optimistic a view as he does. >> it's more likely the market takes a little bit of pous and a lot of that is because of policy and everything that's going on in washington, creating some degree of limited risk tolerance. but the other key component is earnings. the market has risen over the last several years on the backbone of strong earnings gains. a year ago we
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the backbone of very, very strong earnings gains. a year ago, we were talking about 16% earnings gains year over year. now we're talking about 0% to 3%. i think we're more likely to take a little bit of pause. the economy resets. the earnings resets in 2013 and then maybe we can move higher into the end of the year. >> let's take it a little further how these sectors performed in 2012. financials did the best. up more than 26%. but you can see consumer discretionary, which is the kind of thing that is affected by this fiscal cliff discussion, not doing so well. health care probably continues to be okay. information technology a little worse. energy return was very low return, very low natural gas prices may have contributed to that. what do you think in terms of sectors? once you are starting to pick and chose, where would you go? >> my favorite market going into 2013 is the yield oriented sectors, health care, consumer staples, utilities.
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i think investors completely broke up with yield, fearing tax increases. i think the yield is still very desirable to an investor searching for opportunities for income. i think yield-oriented probably present the best opportunity. on the other hand, i think technology and energy are probably the most dangerous components right now. technology in particular has the worst earnings trends in the index, probably going to show 0% earnings in the fourth quarter, as businesses have actually pulled back on spending to the tune of recession sorts of spending environments. so tech is a little dangerous. energy really dependent upon the price of oil. we've had some magnificent discoveries in the energy space over the last couple years. that's going to have great impacts on the economy going forward, but it presents hurdles for stocks in terms of performance. >> cost of energy is coming down. we're not sure what that does to the energy stocks. ned, if you are picking and
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choosing, what are you liking, what you are not liking? >> just the opposite. i love the technology area right now. last year, i bet on the qs. the year before i bet on the qs. i hear the case about slowing earnings, but the stocks have already slowed down. apple is 200 points below its high. if you start to look at them statistically, the price earnings ratios on big cap stocks are less than the s&p 500. the future, the future growth, secular growth of this industry has got to be twice that of the s&p, yet it's got a p/e ratio that's 3 percentage points less. 3 multiple points. the other factor i like about it is, this is the reason employment growth hasn't been strong. substitution of labor for capital, clearly, we've seen productivity rise because of what's going on in technology. the world still has to be wired, without any question whatsoever. and i get back to this valuation issue again, if you look at free cash flow, enterprise value versus free cash flow, the top five stocks in the big tech index are selling at half of the multiple that they were five and ten years ago.
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my god, this is an industry that's gone bananas on one side of the earnings and yet the price earnings ratios have already dropped to take in the uncertainty of cyclicality involved. let me finish with this one, ali. i think that this bonus depreciation, once i figure out what it means, could be a boon to the apples of the world and the rest. but more importantly, it shows that capital investment is getting some notice in washington. and clearly, they know we need capital spending in this country to boost our economy and to export. so bottom line, i love technology. i do like the health care area right now because it is the same thing, a unit grower. the other stocks, consumer nondiscretionary, i don't like. consumer discretionary have come up quite a bit because of what's gone on in terms of basic economics. the bottom line, ali, i'm looking for 1500 in the s&p 500 over the next year and a half. earrings this year, maybe 4 or 5% growth.
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i'm clearly looking for an inflation and interest rate starting to rise gradually throughout the year as the fed loses control over the long end of the curve because of fundamental cyclical strength we'll see in the economy. >> gina, you're not as bullish as ned is, but you still think there are remarkable opportunities. the three of us are agreed this constant pullout from the market should stop when it comes to viewers? >> i think there are selective opportunities for 2013. i don't want to suggest it's an all out-low case for stock. i do think that investors searching for yield do have an opportunity particularly considering the trend we saw at the end of 2012. >> gina martin, ned riley, hey, what are you doing with your money in 2013? as you've heard, there could be an economic renaissance, but washington could still mess it up. tweet me now @alivelshi. coming up, partisanship over conflict. these have been prevailing
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